Build Back Better: We’ll get a lot — and pay a lot
Although there is “no crisis” on the southern border, Biden press secretary Jen Psaki admits there is a “big problem,” which is partly because “the last administration left us an … unworkable system.”
The withdrawal from Afghanistan was, President Biden observed, an “extraordinary success.” But 1 million Afghan children are now facing starvation.
Inflation is only “temporary.” Secretary of the Treasury Janet Yellen tells us, “We have it under control.”
The “Build Back Better Agenda,” President Biden us assures, “costs zero dollars.” He said additional revenues, largely generated by raising taxes on corporations and the rich, who do not pay their “fair share,” will pay for his program.
President Trump told lies. President Biden doesn’t tell the truth. For a short while, it was a refreshing change.
In Build Back Better, President Biden largely adopted the policies advocated by Sen. Bernie Sanders. The senator sees the European welfare state as a model to which we should aspire.
It’s a good model. I’ve lived in
Europe on seven occasions, and there is much about European life and culture that I admire. If not for family, friends and job, I might have preferred living in Europe.
What are the things that people worry about? Work, health and education are major concerns.
Fewer people work in Europe (i.e., there is a lower labor participation rate), and they work fewer hours and enjoy more vacation days. Maternity leave, child care and unemployment compensation are all generously supported.
Health care is universally provided, although sometimes with treatment delays. University tuition fees are now common but are far lower than in the United States.
To pay for all this welfare generosity, the taxes that people directly and indirectly pay are much higher than in the United States. And, additionally, there is some sacrifice in economic growth.
But economic growth and the consequent increase in material prosperity aren’t the only things that are important.
In the postwar 1940s, economist John Maynard Keynes mused that we would soon reach a level of economic well-being sufficient to satisfy all or most of our material needs. He argued that in the future, our scarce resources would be better redirected toward achieving a higher level of cultural and spiritual well-being.
We ignored his advice, but was he right? Your answer requires comparing material well-being then with what it is now.
If you have a personal or historical awareness of the immediate postWorld War II era, the answer is both obvious and not. We have a much higher level of material well-being than Keynes likely imagined. But are we happier for being richer?
Suppose we opt for the welfare state Sen. Sanders advocates. How do we pay for it? Is it really the costless proposition President Biden would have us believe?
Here, briefly listed, are some facts and comparisons that President Biden neglects to mention. The rich may not pay their “fair share” of taxes, but the top 10% of American taxpayers earn a little over 33% of earned income and pay slightly more than 45% of all income taxes.
The richest 10% in European countries such as France, Germany and Sweden pay a significantly lower proportion of their country’s total income taxes. That is, income taxes are significantly more progressive in the United States.
The bottom 90% of U.S. taxpayers contribute 55% of total income taxes. In France, Germany and Sweden, the bottom 90% pay a much greater share of income taxes. In Sweden, a country that Sen. Sanders especially admires, it is 73%.
In America, we pay state sales taxes on the goods and services we buy. In Pennsylvania, with clothing and food expenditure excluded, we pay a 6% sales tax.
In Europe, there is the value added tax. The VAT is a tax on the value added at each step in the production process. Final consumers in England, for example, pay a VAT of 20%; in Sweden it is 25%. The VAT is an essential source of revenue for the welfare state.
Let’s not forget the proposed increase in corporation taxes. Some economists estimate that more than 50% of the increase in corporate taxes that are not passed on directly to the consumer are paid for in the form of lower wages (a hidden “tax”).
If we want a European style welfare state, we’ll pay for it in higher taxes and slower economic growth. Don’t believe the untruth that you will be protected if you earn less than $400,000.
You are going to get a lot, but you’ll pay for it. It is the fundamental principle of economics: There is no such thing as a free lunch.
George Heitmann is professor emeritus of management science at Penn State (University Park) and professor emeritus of economics at Muhlenberg College.